Patent Injunctions Two

Years After eBay

Massachusetts Continuing Legal Education
2008 Intellectual Property Conference
June 18 2008

Lee Gesmer
Gesmer Updegrove LLP
gesmer.com/mcleseminar

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Continental Paper
(1908)

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never used

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never licensed

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"non-practicing entity"
(NPE)

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Supreme Court:
no obligation to make
use or vend the
invention
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patent grant is right
to exclude others
from making, using or
vending
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"Anything but
prevention takes
away the privilege
which the law
confers upon the
patentee" 9
Carbice Corp (USSC 1931):
"the [patent] owner can,
of course, prohibit
entirely the mfg., sale, or
use of [the invention]
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Harford-Empire (USSC
1945):
•set price for use by others
•use and refuse to license
•neither use nor license

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U.S. v. Line Material (USSC
1948):
"a patent confers a
monopoly … so this court
decided in Paper Bag"
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Zenith Radio (USSC 1969)
"The heart of [legal monopoly]…is
legal monopoly is the right to
invoke the State's power to
prevent others from utilizing his
discovery without his consent"
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MercExchange v. eBay
(E.D. Va)

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 Patent 5,845,265:
"Consignment nodes"
Thomas G. Woolston
Filed: November 7,
1995
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"What is claimed is:
1. A system for presenting a data
record of a good for sale to a
market for goods, said market
for goods having an interface to
a wide area communication
network for presenting and
offering goods for sale to a
purchaser, …"
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District Court:
• Lack of commercial
activity
• willingness to license
• business method patent

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permanent injunction
denied

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Federal Circuit:
right to exclude is
"essence" of patent
property right
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General Rule:
Permanent
injunction issues,
except in "rare
instances"
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case must be
"exceptional to justify
the denial of a
permanent injunction"
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"practice" = irrelevant

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eBay v. MercExchange,
547 U.S. 1015 (May 15,
2006)
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U.S. Const. Art. I,
§8,cl. 8:

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"The Congress shall
have power to:

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"promote the progress
of science and useful
arts, by securing for
limited times to
authors and inventors
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…the exclusive right
to their respective
writings and
discoveries"
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35 U.S.C. 261 :
"patents shall have
the attributes of
personal property"

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*

35 U.S.C. 154(a)(1):
"the right to exclude
others from using,
offering for sale or
selling throughout the
United States"
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but …

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35 U.S.C. 283:
"courts having
jurisdiction of cases
under this title may
grant injunctions in
accordance with the
principles of equity … 33
. . .to prevent the
violation of any right
secured by patent, on
such terms as the court
deems reasonable."
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Justice Thomas:

"right to exclude"
distinct from "provision
of remedies"
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Four-factor test:

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plaintiff must prove:
5. irreparable harm
6. remedies at law
inadequate
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3. equity warranted
considering balance
of hardships; and
4. public interest not
disserved
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no categorical rule for
nonpracticing
patentees, but:
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•universityresearchers
•self-made inventors

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Thomas:
"we hold only that"

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"equitable discretion"

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"traditional principles
of equity"

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Roberts (Scalia, Ginsburg):
• injunctive relief in vast
majority of cases
• Court is not "writing on a
completely clean slate"
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"a page of history is
worth a volume of
logic"
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Kennedy (Stevens,
Souter, Breyer):

"right to exclude does

not dictate the remedy"

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"nature of the patent
and the economic
function of the
patent holder"
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•"new era" of patent
holding companies
•"vagueness and suspect"
of business method
patents
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•small component
•leverage/bargaining
tool
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experience since eBay

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(1)

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z4 v. Microsoft (EDtTx
2006, Davis)

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•Windows XP, 2000
activation codes
•willful infringement,
enhanced damages
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eBay:
"plaintiff must prove:"
irreparable harm …

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Judge Davis:
after eBay,
irreparable harm not
presumed
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•z4 licensor, not
competitor
•small component
•no obstacle to z4
licensing to others
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MS "parade of
horribles"-
•software redesign
•re-releases
•product delays
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•piracy
•industry
wide ripple
effect/OEMs

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• permanent
injunction denied
• reasonable royalty
imposed for past
infringement used
for ongoing royalty 63
(2)

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Finisar v. DirectTV
(EDtTx 2006, Clark)

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•willfulinfringement
•enhanced damages
•licensor, not competitor
•permanent inj. denied

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$1.60 per set top box

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"it is anticipated that, as
sophisticated entities
with experience in
licensing agreements, the
parties may wish to agree
to more comprehensive or
convenient terms" 68
(3)

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Paice v. Toyota
(EDtTx 2006)

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• hybrid drive trains
• Prius II, Highlander
Lexus RH400
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•irreparable harm not
presumed
•NPE
•small component

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•harm to Toyota
reputation
•cost of redesign
•post-trial offer to
license
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• harm to dealers and
suppliers
• harm to "burgeoning
hybrid market"
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Holding:
permanent injunction
denied
- "ongoing royalty"
= $25/vehicle
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(4)

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Paice v. Toyota -
CAFC decision on
appeal (Oct. 2007):

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• jury trial?
• on remand: negotiate
before court-ordered
license
• ongoing royalty rate

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Judge Rader:
•remand to parties, or
•obtain parties’consent

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ongoing royalty
= compulsory license

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"Pre-suit and post-judgment acts
of infringement are distinct, and
may warrant different royalty
rates given the change in the
parties’ legal relationship and
other factors"
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(5)

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MercExchange on
remand to E.D. Va.
2007
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permanent injunction
denied a second time

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•finding of willfulness
not dispositive
•willingness to license
significant factor
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• obtained licenses
through threat of
litigation
• didn’t seek preliminary
injunction
• business method patent
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•ifmoney is all it seeks,
money is sufficient remedy
•PTO reexam "impacts the
equitable calculus"
•no B/M "second look" by
PTO
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(6,7)

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Visto v. Seven Networks
(EDtTX 2006, Ward)
Brooktrout v. Eicon
(EDtTX 2007, Ward)
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Marshall, Texas

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District Court Judge T. John Ward

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fact parties are direct
competitors weighs
heavily
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"intellectual property
enjoys its highest
value when … asserted
against a direct
competitor in
plaintiff’s market" 93
"right to exclude is
the very essence of
the intellectual
property at issue"
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Other factors:
• goodwill
• potential revenues
• market share
• damages,
reasonable/precision
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(8)

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Akamai Technologies
v. Limelight Networks
(D. Mass, Zobel)
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Graphic

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Akamai:
• direct competitors
• customer relations
• goodwill

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•Akamai has never
licensed
•damages/reasonable
certainty
•alternatives
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Limelight:
•Akamai prospered
•restraint on monopoly
power
•preliminary injunction

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• non-willful
• cost to poorer
customers
• job loss
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What questions
remain?
What have we
learned?
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?

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compulsory license
rewards infringer?

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should patent holder
be comp’d at higher /
different rate after
finding of
infringement? 108
eBay Hearings?

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• indemnification?
• audit rights?
• choice of law?
• new products?
• royalty escalations?
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Alternative? -
•no forced royalties
•new suit
•damages; trebling for
willfulness; att. fees;
interest
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preliminary
injunctions?

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Copyright, trademark?

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but we know …

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"automatic" or "semi-
automatic" injunction

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 presumption of
irreparable harm

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• non-practicing patentees
face steep odds
• "patent holding
companies" face extremely
steep odds

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in NPE / non-
competitive cases,
threat of catastrophic
result is greatly
minimized, if not gone
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NTP v. Research in
Motion
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$612,500,000
On March 3,
2006
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May 15, 2006

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easier to analyze and
calculate risk

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litigation strategies

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Patent holder:
•practice
•compete
•limited license deals
•avoid "undue
leverage" defense 125
•reject settlement offers
•name your licensee in
suit
•ITC exclusion order?

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accused infringer:
•reasonable royalties
•equities -
economic hardships
need for product
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• bait settlement offer (FRE
408?)
• public interest (medical,
safety, defense)
• workaround
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THANK YOU!

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and remember:

gesmer.com/mcleseminar

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